Elections, Brexit, Volatile Stock Markets Cause Leasing Decision Delays in Manhattan

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According to global real estate consultant JLL, market uncertainty due to the upcoming presidential election, Brexit and a volatile stock market has caused some tenants to postpone real estate decisions.

Although building tours remained robust in the second quarter of 2016, the 13.21 million square feet of leasing activity recorded in Manhattan year to date was down 16.8 percent compared with the 15.82 million square feet in deals completed at this point in 2015.

"It is not uncommon to see a dip in activity during a presidential election year or political uncertainty," said Tristan Ashby, Vice President and Director of New York research. "A number of large transactions are moving forward and activity could pick up by year-end or spill over into next year. Demand has not left the market, although concessions are increasing and lease closings may take longer."

Manhattan's overall vacancy rate dropped to 9.9 percent this quarter, a decrease of 1.0 percent (or 0.1 percentage points) from 10.0 percent in the first quarter of 2016. Year over year, the city's overall vacancy rate grew 2.1 percent (or 0.2 percentage points) from 9.7 percent in the second quarter of 2015. The Class A vacancy rate fell to 10.8 percent in the second quarter of 2016, a decrease of 1.8 percent (or 0.2 percentage points) from 11.0 percent the previous quarter. Year over year, Manhattan's Class A vacancy rate rose 1.9 percent (or 0.2 percentage points) from 10.6 percent.

Overall average asking rents in Manhattan rose to $70.39 per square foot this quarter, an increase of less than 1.0 percent from $70.18 per square foot in the first quarter of 2016. Year-over-year, the city's overall rates grew 4.1 percent from $67.63 per square foot in the second quarter of 2015. Class A average asking rents rose to $77.18 per square foot in the second quarter of 2016, an increase of less than 1.0 percent from $76.88 per square foot the previous quarter. Year-over-year, Manhattan's Class A rates rose 3.3 percent from $74.73 per square foot.

Midtown South

Midtown South leasing activity remained moderate for the first half of the year, on par with this time last year. The Simons Foundation inked the only large transaction recorded in the submarket this quarter. The nonprofit organization expanded from across the street to lease the entire 125,000-square-foot-building at 162 Fifth Avenue. In its first East Coast location, software school Galvanize Inc. committed to 54,500 square feet at 315 Hudson Street. Additionally, 860 Washington Street landed its second tenant as e-commerce giant Alibaba leased 21,706 square feet at high-market rents.

Large blocks of available space -- those greater than 100,000 square feet -- remain limited in Midtown South, with just three large blocks currently available during the next twelve months. Several large blocks at buildings under construction are slated for delivery by the end of 2018 including 512 West 22nd Street, 61 Ninth Avenue and 412-414 West 15th Street.

Midtown South's overall vacancy rate remained one of the tightest in the country at midyear 2016. The submarket's overall vacancy rate fell to 6.7 percent this quarter, a decrease of 2.9 percent (or 0.2 percentage points) from 6.9 percent in the first quarter of 2016. Year over year, Midtown South's overall vacancy rate dropped 6.9 percent (or 0.5 percentage points) from 7.2 percent.

The submarket posted the lowest Class A vacancy rate since year-end 2014. The Class A vacancy rate fell to 5.3 percent in the second quarter of 2016, a decrease of 10.2 percent (or 0.6 percentage points) from 5.9 percent the previous quarter. Year over year, Midtown South's Class A vacancy rate dropped 22.1 percent (or 1.5 percentage points) from 6.8 percent.

Overall average asking rents in Midtown South rose to $70.43 per square foot this quarter, an increase of 2.7 percent from $68.61 per square foot in the first quarter of 2016. This was largely the result of pricing in new developments, as rents throughout the submarket are expected to rise at a slower pace going forward. Year-over-year, the submarket's overall rates grew 3.5 percent from $68.03 per square foot.

Class A average asking rents rose to $81.67 per square foot in the second quarter of 2016, an increase of 2.6 percent from $79.59 per square foot the previous quarter. Year over year, Midtown South's Class A rates rose 3.1 percent from $79.24 per square foot. The year-over-year increase was mostly a function of a tight market affected by the addition of space at One SoHo Square and above-market pricing at 860 Washington Street.

Midtown

Midtown leasing volume improved in the second quarter of 2016 but still lagged behind last year's levels. Eight large-block leases of 100,000 square feet and greater were signed in the second quarter of 2016 compared with 12 in the second quarter of 2015.

UBS signed the largest lease of the quarter, an 891,000-square-foot renewal at 1285 Avenue of the Americas. The financial services company gave back roughly 60,000 square feet of space in the renewal. NYU Langone Medical Center committed to the entire building at 222 East 41st Street for a total of 389,522 square feet. This facility will serve as a new medical center, which will include the lobby, common areas, parking garage and all 25 floors of office space of the building. Schroder Investment Management signed the first lease at the recently completed 7 Bryant Park, taking 73,796 square feet in the tower.

Midtown's overall vacancy rate dropped to 10.3 percent this quarter, a decrease of 1.0 percent (or 0.1 percentage points) from 10.4 percent in the first quarter of 2016. Year over year, the submarket's overall vacancy rate grew 7.3 percent (or 0.7 percentage points) from 9.6 percent in the second quarter of 2015. The Class A vacancy rate fell to 11.4 percent in the second quarter of 2016, a decrease of 1.7 percent (or 0.2 percentage points) from 11.6 percent the previous quarter. Year-over-year, Midtown's Class A vacancy rate rose 10.7 percent (or 1.1 percentage points) from 10.3 percent.

Overall average asking rents in Midtown rose slightly to $75.02 per square foot this quarter, an increase of less than 1.0 percent from $74.98 per square foot in the first quarter of 2016. Year-over-year, the submarket's overall rates grew 3.9 percent from $72.21 per square foot. Class A average asking rents rose to $81.19 per square foot in the second quarter of 2016, an increase of less than 1.0 percent from $81.09 per square foot the previous quarter. Year-over-year, Midtown's Class A rates rose 2.3 percent from $79.33 per square foot.

Downtown

After benefiting for several years from inward migration with tenants drawn to newer space and attractive rents, leasing activity has slowed year-to-date. If not for McGraw Hill's 900,000-square-foot renewal at 55 Water Street, which was signed earlier this year, Downtown deal volume would be near a historical low point. Vacancy rates are expected to fluctuate in the coming months due to a few pending large-block leases and space additions.

QBE North America recorded the largest Downtown lease of the quarter with a 97,228-square-foot sublease at 55 Water Street. The World Trade Center captured two significant tenants: Hudson River Trading leased 69,000 square feet at 4 World Trade Center, and Ameriprise Financial leased 38,000 square feet at 1 World Trade Center.

Downtown's overall vacancy rate rose to 11.2 percent this quarter, an increase of less than 1.0 percent (or 0.1 percentage points) from 11.1 percent in the first quarter of 2016. Year-over-year, the submarket's overall vacancy rate dropped 5.9 percent (or 0.7 percentage points) from 11.9 percent. The Class A vacancy rate remained unchanged at 11.5 percent from the previous quarter. Year-over-year, Downtown's Class A vacancy rate dropped 12.2 percent (or 1.6 percentage points) from 13.1 percent.

Overall average asking rents in Lower Manhattan rose to $57.95 per square foot this quarter, an increase of less than 1.0 percent from $57.73 per square foot in the first quarter of 2016. Year-over-year, the submarket's overall rates grew 1.6 percent from $57.05 per square foot. Class A average asking rents grew to $63.25 per square foot in the second quarter of 2016, an increase of less than 1.0 percent from $62.72 per square foot the previous quarter. Year-over-year, Downtown's Class A rates rose 1.8 percent from $62.16 per square foot.